For 1031 exchange investors, the biggest challenge is to identify an ideal investment property within the 45-days deadline. Under Section 1031 of IRC, every investor must identify one or more replacement properties within 45 days after closing the sale of the relinquished property. Whoever fails to do so will no longer be able to continue with their 1031 exchange.
Non-Availability of desired properties should not surprise you.
Say you have figured out your replacement property. All you need to do is make the deposit and buy that asset. However, what if you come to know that your chosen property is not available on the required date. Non-availability of an investment property depends upon various factors like – market trend, property price, location, etc. To ensure that you don’t come across this unfavorable situation, prepare in advance. Look out for a 1031 replacement properties list in a broker’s office. Real estate agencies often have a list of 1031 properties for sale that can be obtained through some contacts or by paying a small fee.
Types of 1031 Replacement Properties –
- Investment Properties – Be it a multi-family apartment or a retail shop; you can do a 1031 exchange on any investment property. As per the rules, only primary residences don’t qualify for 1031 exchanges.
- DST – If, for some reason, you couldn’t come across a replacement property, you can still make it through your 1031 exchange by investing in DSTs. A DST or Delaware Statutory Trust is a legal entity that owns, manages, operates, and sells investment properties. When you invest in a DST, it is considered as a real estate investment, and this makes a DST investment eligible for 1031 exchanges. A DST investment starts as low as $100K.
- TIC – A TIC investment is the same as the DST. The only difference is, TICs can have as many as 35 investors, whereas a DST has a hundred or even more investors. Besides this, there is barely any difference between them. By investing in TICs, you ensure a regular flow of income for a long time.
As of now, these are the investments/properties that qualify for a 1031 exchange. If you are looking to own a cheaper property, you can look out for 1031 properties for sale. A local real estate broker or agent can help you locate such properties. A well-planned and calculated approach can help you save time and money during your 1031 exchange period.